Henley v Cohen [2013] 2 P&CR 10 (CA)

1.1              The debate in case law about what constitutes a house for the purposes of the Leasehold Reform Act 1967 (‘the 1967 Act’) rages on. Readers may be familiar with the combined appeals in Hosebay v Day; Lexgorge v Howard de Walden [2012] 1 WLR 2884 (SC), in which the Supreme Court was asked to address this question.

1.2              The test in Section 2(1) of the Leasehold Reform Act 1967 is that a to qualify for a the right to enfranchise a building should be a house, and the definition of this is as follows:

“…any building designed or adapted for living in and reasonably so called, notwithstanding that the building…was or is not solely designed or adapted for living in…”

1.3              In both of these cases the properties had an element of mixed use or comprised a number of units of hostel type accommodation within the envelope of a larger building held under the terms of a single long lease and claimed to be a ‘house’ by the tenants for the purposes of the 1967 Act. In both of these cases the claims failed with the Supreme Court (Lord Carnwarth) deciding that the use of the property as at the date of the notice of claim was determinative.

1.4              In Henley v Cohen there was an element of mixed use, as the property comprised a shop with a flat above it. The case of Tandon v Trustees of Spurgeons Homes [1982] AC 755 held that a shop with a flat above (held under a single long lease) could be enfranchised. However, the decision was a 3:2 majority in the House of Lords[1].

1.5              In Henley the distinguishing feature was that the flat above was recently created and could not be accessed from the shop below. The property had also been purposely converted to bring it within the ambit of the 1967 Act. The Court of Appeal declined to find that the property qualified for the right to enfranchise.

Voyvoda v Grosvenor West End Properties [2014] L&T.R. 10

The End of the Zuckerman Addition

1.1              Previous authority (such as City and County Properties v Yeats [2012] UKUT 227 (LC); [2013] R.V.R 47 had held that the so called ‘Zuckerman[1] addition’ (the 0.25% addition to the Sportelli[2] rate to reflect the additional management risk for flats did not need to be applied in a situation where there was likely to be no or little management risk to the freeholder (such as a case where there is a third party management company).

1.2              In this case, heard by the Upper Tribunal (Lands Chamber) concerned a substantial (circa £4M) lease extension on the Grosvenor Estate. The landlord successfully argued that notwithstanding the management ‘risk’ associated with owning the reversion to flats and the burdens placed on the landlord by the service charge regime both under the Commonhold and Leasehold Reform Act 2002 and under the Service Charges (Consultation Requirements) (England) Regulations 2003 (‘the 2003 Regulations’), that it was no longer appropriate to make the Zuckerman addition.

1.3              This was because of the decision of the Supreme Court in Daejan v Benson [2013] UKSC 14 which determined that the power to dispense with the consultation requirements under the 2003 Regulations was to be exercised in a proportionate manner to achieve a balance between the parties, so as to avoid the tenants receiving a windfall because of the refusal of the court to exercise such dispensation, but also to ensure that landlords do not become slipshod in their approach to service charge consultation. Accordingly, the risk to the owner of a well-managed reversion was reduced and there was no longer any basis for making the Zuckerman Addition.

MARK CHICK

This article being general in nature is not a substitute for legal advice. If you require legal advice please visit www.bishopandsewell.co.uk or email: leasehold@bishopandsewell.co.uk

Westbrook Dolphin Square Ltd v Friends Life Ltd [2014] EWHC 2433 (Ch)

1.1              Dolphin Square has been a long-running saga, but an important decision for a number of reasons, notwithstanding is slightly unique circumstances.

1.2              The subject property contained 1,223 flats and is possibly one of the largest ‘blocks of flats’ in the world. Notwithstanding this, it was potentially enfranchiseable. However, to make it so, Westbrook and a group of others (the Claimants) had to create sufficient underleases to bring the property within the ambit of the 1993 Act. In doing so, they also had to take care to ensure that having put the building into a condition in which it qualified for enfranchisement, that that the leases were vested in sufficiently different legal entities, bearing in mind the anti-avoidance provisions within the 1993 Act which prevent 3 or more flats remaining within the same ownership.

1.3              The text of Section 5(5) and 5(6) of the 1993 Act appears below:

(5) Where apart from this subsection—

(a) a person would be regarded for the purposes of this Chapter as being (or as being among those constituting) the qualifying tenant of a flat contained in any particular premises consisting of the whole or part of a building, but

(b) that person would also be regarded for those purposes as being (or as being among those constituting) the qualifying tenant of each of two or more other flats contained in those premises,

then, whether that person is tenant of the flats referred to in paragraphs (a) and (b) under a single lease or otherwise, there shall be taken for those purposes to be no qualifying tenant of any of those flats.

(6) For the purposes of subsection (5) in its application to a body corporate any flat let to an associated company (whether alone or jointly with any other person or persons) shall be treated as if it were so let to that body; and for this purpose “associated company” means another body corporate which is (within the meaning of section 736 of the Companies Act 1985) that body’s holding company, a subsidiary of that body or another subsidiary of that body’s holding company.

1.4              As can be seen from the parties’ names in this case, they are both investment companies using the enfranchisement legislation in a way that it was not perhaps first intended by parliament to achieve a commercial objective. Not surprisingly, Friends Life objected to the claim that was made to the freehold on a number of grounds, which are discussed below.

1.5              Firstly, they challenged the structure of the identity of the qualifying tenants on the basis that the under leases that had been created (and took over 2 years to put in place) were held by a number of SPVs created for the purpose and that these were ‘associated companies’ and as such the claim would fail as it would fall foul of the provisions of section 5(5) of the 1993 Act. However, the structure that had been put in place by Westbrook was sufficiently disparate to avoid this problem. The SPVs in question had shares held by two companies, neither of which had overall control as they each held exactly 50% of the voting rights. Additionally, the shares in one of the companies were held by a discretionary trust and the trustees of that were completely independent.

1.6              Secondly, the High Court held that there was nothing in the scheme of the 1993 Act that would stop one investor enfranchising against another. Whilst the Act contained provisions to limit the right to enfranchise in certain cases involving investors the provisions of section 5(5) and (6) were quite narrow and it was irrelevant if these consequences were not something that parliament had specifically intended when passing this legislation.

1.7              Thirdly, a challenge was brought on the grounds that the property did not qualify  for enfranchisement under the 1993 Act on the basis that more than 25% was used for ‘non-residential’ purposes. The areas in question were short-term lets, but were self-contained units of accommodation, which were in fact flats (rather than hotel rooms) because of their self-contained nature.

1.8              Fourthly, Friends Life sought to challenge the price offered for the freehold (£111M) on the basis that the proposal was not a ‘reasonable’ offer following the line of authority in Cadogan v Morris (1999) 31 HLR 732 . However, on the facts the Court stated that the test to be applied was not an objective test to see whether the figure in fact fell within a certain factual bandwith, but rather that the tenant’s proposal needed to be a genuine bona fide offer that was intended to be taken seriously.

1.9              We can take away from this several important points. Firstly, it is not an abuse of process to initiate a claim and to discontinue it and then bring (after the appropriate period) a further claim on the same basis to enfranchise the same property. Secondly, provided that the scheme of ownership is properly devised, and the interests are genuinely diverse, it is possible to navigate the restrictions on multiple ownership in the 1993 Act. Finally, we have some further observations on the test to be applied to any ‘initial offer’ to be made by the tenant.

MARK CHICK

September 2014

This article being general in nature is not a substitute for legal advice. If you require legal advice please visit www.bishopandsewell.co.uk or email: leasehold@bishopandsewell.co.uk

This surely has to be the biggest piece of Leasehold Reform News this year.

As previously mentioned on this site and elsewhere this act makes a small but simple amendment to the 1993 Act that will make it easier to bring and claims as notices will not have to be signed personally by the flat owner to be valid.

I am pleased to have had some part to play in effecting this change to the legislation through the ALEP working party on legislative reform.

For further details see below:

The Leasehold Reform Amendment Act

On 14 May 2014 the Leasehold Reform Amendment Act will come into force in England.

The Act is the result of a private members’ bill that makes a very simple but effective amendment to one of the key provisions of the Leasehold Reform Housing and Urban Development Act 1993 – namely the requirement that the flat owner must personally sign a notice claiming a new lease or the right to buy the freehold.

In practice this requirement has caused hardship, particularly where a flat owner has for example been under a disability and been unable to sign.

As the law previously stood, someone holding a power of attorney for the flat owner, or even their duly authorised agent (such as a solicitor acting on their behalf) could not sign the notice.

Now any duly authorised person can sign the notice.

Whilst the person signing will still need to show that they are duly authorised, the main practical benefit is likely to be that more people will be able to initiate or participate in claims, particularly in circumstances where signature may be difficult (for instance where they are abroad, or not readily available and able to sign).

This change will also make it easier to bring collective claims to buy the freehold to a building – particularly in a large block as the solicitor will be able to sign parts of the notice on behalf of the flat owners (provided that they have the requisite authority). What will be seen as constituting that authority remains to be seen.

Many of the other technical challenges to getting the notice right will still remain (meaning that expert assistance will very much still be required) – however, this amendment will speed up one element of the process and make claims easier in practice.

MARK CHICK

13th May 2014

This article being general in nature is not a substitute for legal advice. If you require legal advice please visit www.bishopandsewell.co.uk or email: leasehold@bishopandsewell.co.uk